As the monetary authority of Singapore becomes the latest regulator to announce new guidelines for greater accountability, will the changes have the desired result?
Accountability is the watchword for regulators around the world. Ever since the financial crisis in 2008 there has been a concerted move to inject greater personal accountability into the work of senior managers. The latest move comes from the Monetary Authority of Singapore (MAS) which is consulting on new proposals for encouraging greater accountability. However, the questions here are the same as elsewhere: will it really promote better culture and will it discourage managers from being truly innovative?
The MAS proposals
The proposals coming from MAS include:
- Requiring firms to identify individuals who are responsible for key operations within a company and outline what their individual accountability is. Financial institutions would be required to ensure those people were fit and proper for their roles and hold them individually accountable for conduct.
- Individuals in material risk functions which could significantly impact the financial security of an organisation should be identified and subject to an approved incentive structure.
- A framework should be put in place to promote desired conduct among employees.
- Financial institutions should be given a reasonable degree of flexibility to determine the best way to go about achieving these desired results.
Speaking about the proposals Ong Chong Tee, Deputy Managing Director of Financial Supervision at MAS, had this to say: “Clear accountability and proper conduct are important elements of good governance and sound business practice. Persistent misconduct and a lack of individual accountability by persons in charge will erode public confidence in our FIs. We expect the boards and senior management of FIs to instil a strong culture of responsibility and ethical conduct.”
Improving culture and conduct
This the latest move from regulators pushing for a greater culture of personal accountability in top financial institutions. These guidelines are not intended to be prescriptive – instead the onus will be on individual financial institutions. By doing so they aim to set up a framework by which firms can be encouraged to promote an improved corporate culture.
Giving firms greater flexibility over how they approach culture change is part of an overall strategy of engaging financial institutions in the process of pre-emptive and preventative supervision – one which aims to diagnose the root cause of bad culture and address problems before they become serious.
When there are lapses of breaches the regulator would make a number of moves ranging from issuing warnings up to directing an FI to remove an individual director.
It follows in much the same tracks as the FCA’s new guidelines for senior managers which also seeks to strengthen corporate conduct, and it also faces many of the same questions. Some fear that a move to inject greater accountability to discourage some executives from seeking top positions in financial institution. It could also impact the focus on product development and reduce the appetite for risk and innovation as executives choose a cautious approach.
Firms will also have to decide how they will ensure oversight and inject the change that is required. Technology will play an important role in amalgamating requirements from separate regulators and helping firms to establish and maintain an effective culture of oversight throughout the company.
The MAS recommendations are certainly a step in the right direction. They also serve as a sign post for what regulators will be expecting. As such this is an opportunity for forward thinking companies to take a look at their operations, examine their own conduct and help themselves to get ahead of the curve.